Broker Check
Optimistic, But Not Greedy: Market Outlook

Optimistic, But Not Greedy: Market Outlook

January 21, 2021
Share |

Should you have any questions regarding these notes, please do not hesitate to contact Kevin at (678) 401-6102.

Executive Summary

  • Stock markets around the globe have continued to move higher over the last month, as additional stimulus has finally been negotiated and delivered by the US Government. More stimulus has also been promised by the new administration.

  • As the Covid-19 vaccines roll out, the markets are looking forward to economic activity re-accelerating.

  • Beyond this, the Federal Reserve Bank has pledged to keep interest rates at extraordinarily low levels through calendar year 2023, even if it means letting inflation run a little hot.

  • All of this data points to a recovery, both economically and with asset prices in the capital markets.

Our committee met on the afternoon of January 11th, to review the current economic and political backdrop, and its impact on the portfolios managed by the committee.

 

A time of cautious optimism

Our committee met on the afternoon of January 11th, to review the current economic and political backdrop, and its impact on the portfolios managed by the committee.  We are happy to report that as of December 31st, all of our model portfolios had continued to outpace their risk-adjusted benchmarks over the most recent one, three, and five-year periods of time.  The adjustments made by the committee throughout calendar year 2020 seems to have been additive to our overall performance, and we are pleased to have been able to provide our clients with both positive portfolio performance and constructive behavioral counseling during such a difficult year.

According to the strategists and economic teams followed by the committee, the overall outlook for the economy and the markets is one of continuing cautious optimism.  This is based on a number of factors, including the fact that political uncertainty around the election outcomes will fade into the background.  We have long been proponents that capitalism, free market economies, innovation and technology will lead corporate profits higher…not who is in power in Washington D.C.   This can be seen from the chart below, which shows that over many years, the markets have continued to do well regardless of whether Democrats or Republicans control the White House.

The election: stocks have continued higher regardless of presidential party

  

Interest Rates Near Zero

Additionally, as vaccines continue to roll out across the United States and globally, and more of the population becomes vaccinated, it should allow a continuing acceleration in restarting business activities that have been slowed by social distancing and quarantines. We have seen this play out once again as recent economic data has slowed due to the most recent spike in COVID-19 new cases and deaths.

Over and above this, the Federal Reserve Bank has pledged to keep interest rates near zero for the next several years; even if it means allowing inflation to run above their 2% target. This is an important change in Fed policy that was articulated by Fed chairman Jerome Powell in August.

Added to all of this is a massive amount of both fiscal and monetary stimulus that has been thrown at the economy since the pandemic took hold in March of 2020 with the recent $908B of additional stimulus passed by Congress and signed into law by President Trump in early January. This brings the total fiscal stimulus passed by the government this year, to more than $3.5 TRILLION with a “T”. In addition, the Federal Reserve Bank has seen its balance sheet balloon from $4T to $7T due to purchases of over $3T of bonds, mostly Treasury bonds and mortgages to backstop liquidity in the bond market and provide support to the banking system. Over time, this should be additive to asset prices in the stock market, real estate and commodity markets.

 

How are markets reacting?

From a technical standpoint, the market is showing signs of being overbought in the short-term. There is also excessive levels of positive investor sentiment and optimism, which tends to be a contrarian indicator. From a historical basis, this tells us that we should not be surprised to see a short-term pullback or even correction, in what has been an incredibly strong market surge over the last nine months. Volatility and pullbacks should not be a surprise, and are a regular occurrence in a successful, long term investor's life. We believe that with the above factors in place, investors should not panic and should view any temporary downturns as opportunities to add to their positions at slightly lower prices, as we believe risk markets will continue to appreciate during the 2021 calendar year.

 

Final Takeaway

After an unforgettable 2020, many people are looking forward to better times in 2021. We agree. We think that we should be optimistic, but not greedy in our overall outlook. In addition to having the opportunity to buy low when markets pull back, we would suggest that clients continue to sell when markets are near all-time highs to create any cash they will need for liquidity or withdrawal purposes over the next 6 to 12 months, or even perhaps a little further out if you want to be more conservative.

If you have questions about how these issues affect your personal financial situation, please do not hesitate to reach out to your financial advisor. The team at Horizon Advisor Network continues to appreciate your trust and confidence in our team and process and we are here for you, our trusted friends and clients.

 

Should you have any questions regarding these notes, please do not hesitate to contact Kevin at (678) 401-6102. 

*Past performance does not guarantee future results.

*Investments in securities do not offer a fix rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and, when sold or redeemed, you may receive more or less than originally invested. No System or financial planning strategy can guarantee future results.

Members of the Horizon Advisor Network Investment Committee

  • Jesse Hurst- Impel Wealth Management
  • Clint Gautreau- Horizon Financial Group
  • Brian Toma- Freeman Heyne Toma Financial Advisors
  • Kevin Myers- ATL Global Advisors
  • Nate Ollish- Impel Wealth Management
  • Mike Hackler- Horizon Financial Group
  • Joy Schlie- Freeman Heyne Toma Financial Advisors